Apple Drops the Digital-Music Shackles

If you've drawn "digital rights management" in the office death pool, hold that ticket tight. The end may be near now that Apple (Nasdaq: AAPL) has dramatically reduced the price of its available DRM-free library.

Let's go back a few months to get you up to speed. Back in April, Apple began selling higher-quality tracks for $1.29 apiece. The beauty of the iTunes Plus offering is that the songs aren't digitally restricted like the original $0.99 tracks. They are completely portable.

Then came the competition. Offering MP3 files with no strings attached, Wal-Mart (NYSE: WMT) and Amazon.com (Nasdaq: AMZN) entered the market with DRM-free songs for as little as $0.89 each.

Since DRM-free music levels the playing field, Apple was unlikely to be able to justify charging 45% more for similar tracks. So it's not really a surprise to see Apple reduce the price of its iTunes Plus songs to the same $0.99 it's asking for its lower-quality, protected tracks.

Now we get to your winning ticket in the death pool. If a customer can buy a DRM-protected track on iTunes at $0.99 a pop, or pick up a DRM-free version at a sonically superior bitrate, it's an easy choice.

The only thing holding DRM back from certain extinction is that most of the major labels are afraid of embracing freely portable songs. Just 2 million of the 6 million tracks available on iTunes are available through iTunes Plus. It is mostly EMI and smaller indie labels like The Orchard -- which is in the process of being acquired by Digital Music Group (Nasdaq: DMGI) -- that are on board with unshackled tunes.

It's a silly concern. Someone can buy a CD and burn it legally in DRM form. Someone can use a peer-to-peer file-trading network and download it illegally. It's backward-thinking to provide a digital product that is inferior to a physically purchased version or one that is pirated.

But if that lesson falls on deaf ears, keep an eye on the iTunes sales charts over the next few weeks. As consumers flock to the $0.99 iTunes Plus tracks, companies like Sony (NYSE: SNE) and Warner Music (Nasdaq: WMG) will have little choice but to play along or fall off the radar entirely. The beauty of it all is that Apple can't be seen as the bad guy by the labels. It's simply pricing its DRM-free tunes to be competitive with the marketplace.

Pity the labels that are still living in the past. Lord knows they are having a hard time keeping their stars from bolting to self-distribution models or hooking up with promoters like Live Nation (NYSE: LYV) as one-stop shops.

Now it's time for the defiant labels to do the right thing for consumers.

Amazon.com has been recommended by David Gardner for his Stock Advisor subscribers. Wal-Mart is an active stock pick for the Inside Value newsletter. Want some free singing lessons? Check out either service free for the next 30 days with a trial subscription offer.

Longtime Fool contributor Rick Munarriz is a huge music fan whose band landed a record deal with Sony's Columbia Records many moons ago. Don't worry, you've never heard of Paris By Air -- they got dropped after a pair of dance singles in 1989 and 1990. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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